Dee Vine Group Pty Ltd v Palais Reception Centre Pty Ltd

The Albert Palais (the “Premises”) has stood in Catherine Street, Leichhardt since 1934. Originally a dance hall, it is now a “reception centre”.

By a sub-lease dated 11 July 2017 (the “Sub-Lease”) the defendant, Palais Reception Pty Ltd (“Palais”) sub-lets the Premises to the plaintiff, Dee Vine Group Pty Ltd (“Dee Vine”).

These proceedings are an application by Dee Vine against forfeiture of the Sub-Lease based upon Dee Vine’s non-payment of rent and other alleged non-monetary breaches.

For the reasons which follow, the Court is satisfied that relief against forfeiture should be granted, albeit on strict terms.

Mr D Weinberger of Counsel appeared with Mr A Jordan of Counsel for Dee Vine. Mr M Dawson of Counsel appeared with Mr D Elliott of Counsel for Palais.

The Sub-Lease is expressed to commence on 7 August 2017 and terminate on 5 August 2023, with an option to renew for a further three year term. Its terms included provisions set out in four annexures and a memorandum (the “Memorandum”).

The relevant provisions as to payment of rent are set out in Item 1, Annexure 1:

Annexure 1 also contains:

The term “reception centre” in Item 3 is not defined in the Sub-Lease.

Clause 7 of Annexure 2 provides:

The term “Licensed Function Centre” is not defined in the Sub-Lease. There was no dispute that there is a current On-Premises Liquor Licence in respect of the Premises.

The relevant provisions in the Memorandum are:

The other document which assumed some importance during the course of the hearing was a Place of Public Entertainment Licence (referred to as a “POPE Licence”) issued to the head lessor, Woodside Catering Pty Ltd (a company associated with Palais), by the then Leichhardt Council on 11 December 2004. This included:

The exact status of the POPE Licence was not clear. It was expressed to expire on 11 December 2005. Dee Vine’s principal, Mr Simon Elias, gave evidence that he had made enquiries of Leichhardt Council’s successor, Inner West Council, and had been left with the understanding that the POPE Licence continued to apply to the Premises. Palais did not submit to the contrary.

It is not necessary for the Court to resolve the question of whether the POPE Licence continues to apply to the Premises as a matter of law. Its significance for the proceedings is that Mr Elias appeared to accept that it applied and said that Dee Vine was prepared to undertake, as a condition of obtaining relief against forfeiture, to comply with Clause 12 of the POPE Licence in its operation of the Premises as a “reception centre”.

At the time the Sub-Lease was entered into, Dee Vine was controlled by Mr Jatinder Singh Bhogal. Mr Bhogal was assisted in his management of the Premises by Mr Avikash Avikash. Mr Avikash is the licensee of the Premises.

In or about March or April 2019 Mr Elias became the sole director and secretary of Dee Vine. Mr Avikash continues to assist Dee Vine in the management of the Premises and as the licensee.

Even before Mr Elias took over Dee Vine, there had been disputes between Palais and Dee Vine, including as to late payment of rent and Dee Vine’s failure to provide the additional bank guarantee (see Item 5 in Annexure 1 set out in paragraph [8] above) in the sum of $160,000 (the “Additional Bank Guarantee”). This should have been provided no later than 7 August 2018. Those disputes led to previous notices under s 129 of the Conveyancing Act 1919 (NSW) (the “CA”), but which were not acted upon by Palais.

The problems continued after Mr Elias’ involvement began. For example, the evidence includes this email dealing with a complaint made by a tenant in another part of the complex which includes the Premises. On 30 April 2019, Mr Onoufriadis, the principal of Palais, emailed Mr Avikash:

By email of the same date Mr Avikash replied to Mr Onoufriadis:

An even more pressing problem was that after Mr Elias took control, Dee Vine began to permit dance party and night club type events on the Premises. These began to generate complaints to Inner West Council. For example, on 1 May 2019, Ms V Berdikan, the Senior Development Compliance Officer at Inner West Council, emailed Mr Onoufriadis:

Palais has tendered a large body of evidence, including from a nearby resident, which amply demonstrates that in the first half of this year Dee Vine continued to permit noisy night club or dance party type events to occur at the Premises. A convenient summary of the position may be found in a letter from New South Wales Police to Liquor and Gaming NSW of 26 July 2019 which includes:

Dee Vine was also late in paying the February and July 2019 rent.

The circumstances which have given rise to these proceedings were not in controversy.

On 26 September 2019, Palais served a notice dated 12 September 2019 on Dee Vine pursuant to s 129 of the CA (the “Notice”):

On 22 September 2019, by a notice of that date, Palais determined the Sub-Lease and purported to re-enter the Premises for non-payment of rent:

Dee Vine commenced these proceedings by a summons filed in Court on 26 September 2019 which included:

The affidavit in support of the summons was sworn by Dee Vine’s solicitor, Mr Perkes, on 26 September 2019 and included:

The ex parte orders Darke J made on 26 September 2019 included:

When the matter returned to Court on a contested basis on 30 September 2019, Darke J made orders which included:

His Honour also provisionally listed the matter for final hearing before me on 18 October 2019. For reasons it is unnecessary to record, the final hearing ultimately took place before me on 22 October 2019.

While the matter was being prepared for hearing, and notwithstanding the undertakings given by Dee Vine through its Counsel to the Court on 30 September 2019 (see paragraph [30] above), Dee Vine permitted a hip hop concert to take place at the Premises on Saturday, 5 October 2019 (the “5 October event”).

A police report concerning the 5 October event was in evidence before me and included:

There was no dispute that the rent due pursuant to the Sub-Lease has been paid for September and October 2019 and that the next payment of rent is due on 7 November 2019.

It is convenient at this point to deal with Mr Elias’ evidence, who was the only witnessed cross-examined in the hearing.

Mr Elias was not challenged, and I accept, the evidence in his affidavit sworn 18 October 2019 that garbage from the Premises is now sorted and put in bins in the basement room nominated by Palais and is collected on a regular weekly basis each Thursday.

In the same affidavit, Mr Elias stated that: “The shares in [Dee Vine] have been transferred from me back to Jitinder Singh Bhogul, as evidenced by the ASIC current organisation extract in relation to [Dee Vine]” which was in evidence. The ASIC extract records Mr Bhogul as the owner of all of the shares in Dee Vine and refers to a “Change to Company Details, Changes to Members Shareholdings” form with an effective date of 30 September 2019. Mr Dawson submitted that there was no evidence that Mr Bhogul had consented to the shares being returned to him. However, Mr Dawson did not put to Mr Elias in cross-examination that the shares had not been transferred back to Mr Bhogul. In the circumstances I am satisfied that the entire issued share capital in Dee Vine has been transferred back to Mr Bhogul.

In relation to the bank guarantee, Dee Vine had not complied with its undertaking to the Court to provide the additional bank guarantee by 8 October 2019. Mr Elias’ evidence, which I accept, was: (T14:15-15:23)

I accept Mr Elias’ evidence in his affidavit sworn on 2 October 2019 concerning functions currently booked at the Premises:

Comparison between that list and the list set out in paragraph [28] above demonstrates that the night club or dance party events – a 70s night and an 80s night – have been cancelled, albeit one of these had been replaced by the 5 October event. Mr Elias’ evidence in cross-examination was that “The whole Club Formuda has been cancelled”. I understood this to be the name used for the various dance party events that Dee Vine had previously permitted to be conducted at the Premises.

In relation to the 5 October event, Mr Elias’ original evidence in his affidavit sworn on 18 October 2019 was:

On the basis of the police report referred to in paragraph [33] above, I accept Mr Dawson’s submission that Mr Elias’ description of the 5 October event as having been undertaken “with the prior permission of the Police and Office of Liquor and Gaming” is on its face incorrect. However, I am not persuaded that Mr Elias was being deliberately misleading. The impression I formed from his evidence was that he had interpreted the presence of the Police and members of the Office of Liquor and Gaming at the 5 October event, including advice the Police had given him beforehand about security and related issues and the fact that neither authority had sought to stop the event, as some form of permission.

There was also debate in cross-examination between Mr Dawson and Mr Elias about whether the 5 October event had in fact been booked “many months ago” or was a late booking because the premises at which the concert was originally to be held proved to be too small. It is not necessary for the Court to resolve this dispute because, whichever it was, there is no doubt that Mr Elias proceeded with the 5 October event knowing that it was in breach of the Sub-Lease and the undertaking which had been given on behalf of Dee Vine to the Court on 30 September 2019. On no view could the 5 October event be seen as complying with the obligation to use the Premises only as a reception centre, even accepting as I do that the expression “reception centre” is wider than a “wedding reception centre” so that permissible events are not confined to those associated with weddings.

At the conclusion of Mr Elias’ cross-examination, I had this exchange with him in relation to the 5 October event (T38:28-39:38):

While this exchange referred to the POPE Licence, it was clearly in the context of compliance with the Sub-Lease. I am satisfied to the Briginshaw standard that Mr Elias considered that Dee Vine was bound by the POPE Licence and that he knew that the 5 October event breached clause 12 of the POPE Licence, the Sub-Lease and Dee Vine's undertaking to the Court (see paragraph [30] above).

With one exception, which I consider in paragraphs [56] to [60] below, the applicable legal principles were not in dispute. I gratefully adopt this summary from Palais’ written submissions:

Dee Vine submitted that relief against forfeiture ought to be granted because:

Palais submitted that the following matters weighed against the exercise of the Court’s discretion to grant relief against forfeiture:

There can be no doubt that Dee Vine’s failure to pay the September rent entitled Palais to determine the Sub-Lease and re-enter the Premises.

Insofar as Palais relies on the Notice in addition to Dee Vine’s failure to pay the September rent, it is necessary to consider the validity of the Notice. I respectfully adopt and apply what fell from Hodgson JA (with whom Allsop P and Macfarlan JA agreed) as to the requirements for a valid notice under s 129 of the CA in Macquarie International Health Clinic Pty Limited v Sydney South West Area Health Service [2010] NSWCA 268; (2010) 15 BPR 28,563:

Bearing that test in mind, I am satisfied that the Notice gives adequate particulars both of breach and steps to remedy in relation to failure to provide the Additional Bank Guarantee and failure to obtain Palais’ consent to the transfer of all of the shares in Dee Vine from Mr Bhogul to Mr Elias.

Insofar as the Notice asserts breach of the Sub-Lease by reason of use of the Premises other than as a reception centre, I am not satisfied that the breach is sufficiently particularised by the expression “by the use of the Premises as a nightclub venue or other than as a reception centre”. Even allowing for Dee Vine’s knowledge about the issues of concern to Palais, in my respectful view Palais was in a position to and should have given particulars of the events about which it made complaint. This would have put beyond doubt the type of events upon which Palais relied (including whether or not there were functions that were not said to be using the Premises “as a nightclub venue” but which were still asserted to be examples of use “other than as a reception centre”) and leave Dee Vine in no doubt about the types of events which it was being asked to cease to hold to avoid forfeiture of the Sub-Lease.

Similarly, the particulars of breach and remedy in relation to noise lack the requisite specificity. The reference to “loud and excessive music and noise” is very subjective and gives no guidance as to the precise kind of noise which Palais was requiring Dee Vine to cease creating. For example, the liquor licence in evidence for the Premises contains specific requirements of maximum noise level measured in decibels and specific frequencies. It was easily open to Palais to specify breaches by occasions on which those noise levels were alleged to have been exceeded and making clear that they were not to be exceeded in the future. Thereby Dee Vine would have known precisely what it was expected to do to comply with the Notice.

Finally, reliance in the Notice on the alleged failure to remove all trade waste, garbage and refuse from the Premises fails for the same reason. In particular, the statement of remedy as “regularly removing all trade waste, garbage and refuse from the Premises and Building” is so imprecise as to leave Dee Vine (to quote Hodgson JA) to “speculate” as to whether particular action it took might still be insufficient to prevent determination of the Sub-Lease. “Regularly” is, in all the circumstances, too imprecise for Dee Vine to know what it must do to avoid forfeiture. It could easily have been expressed by particular time periods (for example, weekly) or in relation to particular types of events (for example, after events attended by more than a certain number of people).

Subject to what follows, it is therefore the case that the Court is satisfied the breaches upon which Dee Vine is entitled to rely are the non-payment of the September rent, the failure to provide the Additional Bank Guarantee and the assignment of the shares in Dee Vine from Mr Bhogul to Mr Elias without Palais’ consent.

The qualification to which I have just referred arises from a debate between the parties as to the extent to which the Court can look at breaches, especially non-monetary breaches, which are not the subject of a notice under s 129 of the CA. Mr Dawson submitted that on a proper understanding of the authorities, where (as here) a landlord relied on a proven monetary default, the Court was entitled to look at any other aspect of the lessee’s conduct in exercising its discretion to relieve against forfeiture. At the very least, the Court was entitled to look at matters which fell within the description of “exceptional circumstances” (relying on Gill v Lewis [1956] 2 QB 1). Mr Weinberger submitted that the Court was confined to those matters which were properly the subject of a notice under s 129 of the CA.

In my opinion, the law on this question is as set out by White J (as his Honour then was) in Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd [2012] NSWSC 251; (2012) 16 BPR 31,089:

The passage to which his Honour refers in Batiste v Lenin [2002] NSWCA 316; (2002) 11 BPR 20,403 (“Batiste”) is:

It will be apparent from the passage that I have just cited that the “special circumstances” in Batiste to which White J referred were that the other conduct to which the Court had regard was repudiatory conduct on the part of the lessee. I do not think that the category of “special circumstances” is closed. Nevertheless, the fact that in Batiste it was repudiatory conduct that was thought to be sufficiently special suggests that such circumstances should be legally significant or otherwise very serious. In general, I do not think this would extend to matters of dispute between a landlord and tenant that have not gone beyond contested allegations of breach. In the present case, I am not satisfied that the dance party events which Dee Vine permitted to take place on the Premises between April and September – and which events, for the purpose of the argument, I accept were in breach of the Sub-Lease – are “special circumstances” which the Court is entitled to take into account in the exercise of its discretion. This is especially the case where Palais has not drawn to attention any correspondence in which it was asserted that Dee Vine had repudiated (as opposed to merely having breached) the Sub-Lease.

On the other hand, I have no doubt that the Court should take into account, whether as “special circumstances” or as matters going generally to the Court’s discretion arising from breach of its own process, Dee Vine’s breach of its undertaking to provide the Additional Bank Guarantee and, even more seriously, to permit the 5 October event to proceed in circumstances where the Court is well satisfied on the Briginshaw standard that Mr Elias understood that the event did not comply with Clause 12 of the POPE and the user requirement under the Sub-Lease.

However, as I shall next develop, despite the very serious and adverse impact I consider permitting the 5 October event has on Dee Vine’s entitlement to relief, that is sufficiently, but not by much, outweighed by my satisfaction that Mr Elias has resolved to comply with the Sub-Lease by not holding any such further events. To this I add that it is clear that he understands that Dee Vine will lose the Sub-Lease if such further conduct occurs.

I am therefore satisfied that the Court should exercise its discretion to grant relief against forfeiture, albeit on terms.

I have reached this conclusion for five reasons.

First, Dee Vine’s monetary breach for non-payment of rent has been cured. However, given that the next rental payment is due in a fortnight or so, it seems to me appropriate that any relief be conditional on that payment being made on or before its due date of 7 November 2019. The non-monetary breach in relation to the assignment of the issued share capital of Dee Vine has also been cured. The outstanding non-monetary breach in relation to the provision of a guarantee will be dealt with as part of the conditions that the Court will impose.

Second, the Court is satisfied that Mr Elias will ensure that no further events of the dance party or night club type will be held at the Premises. As I have already observed, he clearly understands that such events breach the Sub-Lease and Clause 12 of the POPE Licence (irrespective of whether or not the POPE Licence continues to apply, because it is inconceivable that an event that would otherwise be a lawful use of the Premises would not be an event that met the requirements of Clause 12).

The Court is therefore satisfied that events such as the 5 October event will not recur. However, the fact that the 5 October event did occur, in circumstances where I have found that this was in knowing breach by Mr Elias on behalf of Dee Vine of the Sublease and subsequent undertaking to the Court, warrants a condition being imposed to make it clear that a repeat of such conduct will result in forfeiture of the sublease.

Third, looking at the matter practically, there seems to be little doubt that the issues of noise and rubbish mostly related to events such as the 5 October event. If those events cease to be held, then the Court is satisfied future breaches in relation to excess noise or the failure to remove what appears to have been excess rubbish, are highly unlikely to recur.

Fourth, the annual rent is $230,000 plus GST. Palais already has a guarantee of $300,000 from Dee Vine. The relief which the Court proposes to grant will be conditional upon the Additional Bank Guarantee (or its equivalent) being provided. That will mean that Palais has a guarantee equivalent to two years’ rent for the Premises. That is a considerable degree of protection against the consequences of any future breach by Dee Vine.

Fifth, although not decisive, I have given some weight to the inconvenience that would be caused to those third parties who already have weddings and other functions booked at the Premises.

Finally, I note that between the conclusion of the hearing and the time of delivery of these reasons, Palais’ solicitors submitted a document which in addition to specifying when in fact rent was paid between April and October 2019, states that outgoings of $4,174.62 and interest on late rent of $2,578.35 remains outstanding.

Those amounts should be paid and the Court’s relief will be conditional upon that payment.

I will hear the parties as to the appropriate form of the orders which should be made, including as to costs. However, for the avoidance of doubt, I summarise that relief against forfeiture will be conditional on: